Asylum seekers in Britain are being housed in publicly-funded accommodation despite earning an income above legal thresholds, a spending watchdog investigation has found.

Individuals or families may be occupying flats or houses to which they are not entitled, taking resources away from asylum seekers more in need, warned the National Audit Office (NAO).

Housing officers who see signs of wealth during inspections, suggesting the occupant may have a higher level of income, have a contractual duty to report this to the Home Office within one working day.

NAO investigators flagged their concerns following an inquiry into Government contracts with private firms G4S, Serco and Clearel for providing accommodation for asylum seekers.

They found G4S and Serco had failed to meet contractual standards in some areas, such as property conditions, and the Government was now attempting to recover rebates worth £3 million to £4 million due to poor performance.

Yet G4S, Serco and Clearel are pushing for the Government to allow them to expand into new areas outside the agreed postcodes for taking on asylum seekers.

The Home Office provides accommodation and support for asylum seekers in the UK who are assessed as being "destitute".

Cash and housing support can be provided to applicants whose assets, income and other available support fall below the "destitution threshold" under the Immigration and Asylum Act 1999.

In its report, the spending watchdog said: "During the fieldwork for our investigation, we visited a sample of properties used to house asylum seekers.

"In some of these, it was clear that the occupants may have a level of income above that expected of someone receiving the minimum level of support under section four or section 95 of the Immigration and Asylum Act 1999.

"There is a risk that individuals or families may be occupying properties to which they are not entitled, thus taking resources away from those more in need."

Where possible, the Home Office will also seek to recover overpayments and pursue a prosecution if evidence of income is uncovered.

As of April last year, the Home Office provided accommodation for around 23,000 asylum seekers with around 60% receiving financial support from the department.

At the end of 2012, the former UK Border Agency (UKBA) replaced 22 separate contracts provided by 13 different suppliers with six contracts, which were divided between G4S, Serco and Clearel. In 2011/12, it cost around £150 million to provide accommodation for asylum seekers. The move was known as the Commercial and Operational Managers Procuring Asylum Support Services (Compass) project.

The contracts were split into six regions - North West, Scotland and Northern Ireland, North East, Yorkshire and the Humber, Wales and South West, Midlands and East of England and London and the South East.

G4S and Serco "struggled" throughout preparations for and during the transition, the NAO found, causing continued uncertainty for asylum seekers.

Both firms took on housing stock without inspecting it, and subsequently found that many of the properties they had taken on did not meet the contractual quality standards, said the NAO.

And both G4S and Serco continued to fail to meet contractual standards in some areas, the spending watchdog added, such as finding properties for asylum seekers in a set timescale and on property conditions.

Refugee Council chief executive Maurice Wren said: "The Compass contractors are charged with housing some of the most vulnerable in our society.

"Asylum seekers are often people who have fled horrifying experiences in their own countries and have lost everything. They do not get a choice where they live and are totally reliant on the Compass contractors to ensure that their properties are safe for them and their families to live in.

"Failure to provide adequate accommodation is always unacceptable. It's essential the Home Office sets clear standards, provides the resources required to deliver them and is tough on contractors who fail to meet them."

Elsewhere, the report revealed that G4S, Serco and Clearel are pushing for the Government to allow them to expand into new areas outside the agreed postcodes for taking on asylum seekers.

The Home Office told the NAO it had started national and regional discussions to look at current agreements.

Shadow immigration minister David Hanson said: "This report shows a Home Office under Theresa May that have botched the delivery of a key savings programme for accommodation and in doing so have incurred additional costs to the taxpayer.

"It is now vital that the Home Office come clean on how much extra cost is being incurred, w hat they are doing to renegotiate contracts a nd if G4S and Serco and Clearel will be paying any money back to the taxpayer for the under-performance."

A Home Office spokesman said: " The UK has a proud history of granting asylum to those who need it and we are committed to providing safe and secure accommodation while applications are considered.

"We are pleased that this report recognises the recent improvement of Compass' contractors, as well as the £8 million of savings over the last year."

A G4S spokeswoman said: "We agree with all recommendations made and many of these have already been implemented as part of our ongoing commitment to service improvement."

James Thorburn, managing director of Serco's home affairs business, said: "Our top priority is the welfare and well-being of almost 10,000 vulnerable asylum applicants in our care in north west England, Scotland and Northern Ireland.

"The transition from the previous contracts was, as the NAO acknowledges, challenging, but Serco at all times concentrated on minimising the disruption to service users through extensive communication including the provision of information in 12 languages.

"Over 90% of service users remained in the same accommodation, ensuring the continuity of key services for families and individuals such as healthcare and education.

"We accept that there remains scope for further improvement and we are committed to working with the Home Office and our partners in local government, the NHS and the voluntary sector to achieve that."